Karnataka HC Confirms Withdrawal of 12AA Registration since Trust Collected Capitation Fee under Innocuous Name of Anonymous Donations [Read Judgment]

Capitation Fee

The Karnataka High Court recently confirmed the withdrawal of registration as per section 12AA of the Income Tax Act 1961 since the Assessee, Navodaya Education Trust collected capitation fee under innocuous name of anonymous donations.

The assessee in the instant case is an educational trust running 13 educational institutions including medical college, dental college, engineering college, school etc registered under Section 12AA of the Income Tax Act and it was granted exemption from payment of Income Tax.

During the year a search was carried out by the Revenue at various places including the said educational institutions and it was found that the trust was indulging in illegal activities like collecting of capitation fees and had indulged in money laundering for private profit purposes of the Trust and various assets were purchased from trust funds in the names of the trustees etc and therefore, it cannot be said that the Assessee existed solely for educational purposes. Consequently, the Revenue decided to withdraw the 12AA registration for violating the conditions laid down in the said registration process.

After considering the facts and circumstances of the case, Justice Vineeth Kothari observed that “education would remain in a case where education is imparted systematically for a fee prescribed by the Government. A private aided or unaided institution of a state is required to collect fees with regard to infrastructure and benefit of students of that educational institution. Collection of the fee over the above fee prescribed by the committee would amount of collection of capitation fee. The material facts revealed that the trust collected capitation fee under innocuous name of anonymous donations, this clearly shows that the Assessee educational trust was running like a business establishment rather than for educational purposes”.

The Court further held that the Trust rendering it as merely a skeleton for the purpose of exemption to educational trust and rather than a real educational trust, solely existing for the purpose of education. Such bogus trusts cannot be held to be entitled to exemption under the provisions of section 10(23-C) of the Act and therefore, the Court confirmed the order passed by the lower authority to withdraw the approval of the Assessee trust for 12AA registration.

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